Most manufacturers positive despite clouds from trade disputes

Most manufacturers positive despite clouds from trade disputes

Data compiled by Bloomberg shows that manufacturers in most countries are positive about the outlook. Stock image

Manufacturers are on the front edge of the world economy.

What they are witnessing and the decisions they are making about spending and hiring can swiftly affect global growth.

Data compiled by Bloomberg shows that manufacturers in most countries are positive about the outlook.

The data is derived from purchasing managers’ indexes – surveys of decision-makers at companies that are designed to elucidate sentiment.

The positivity comes despite potential disruption from trade disputes, and on a more local level for Ireland, Brexit.

Russia though is an exception to the general trend. Its manufacturing PMI continued to slide in July, despite the services index picking up.

Weakness in manufacturing could reflect higher input costs, sanctions-related uncertainty and a deterioration in external demand. It’s best to think of the PMIs as a gauge of underlying momentum. They’re a better reading of the breadth of changes in activity, rather than depth, and so the sharp slide this year could reflect a deterioration that has been broad based, but fairly mild.

But there are a few clouds hanging over the Russian economy that might cast a shadow on manufacturers, particularly non-oil exporters.

Fuel costs spiked just as tighter sanctions and diminished risk appetite in emerging markets sent the rouble into a plunge. That’s an unusual combination for Russia, and has served to push up input costs.

The threat of further US action is probably only a mild drag on growth in the economy as a whole, but the effects could be more acute for the external sector.

And while Russia’s exposure to the US-China trade war is relatively small, a retrenchment in foreign demand would still sting.

Manufacturing only accounts for about 13pc of gross value added in the Russian economy, but this engine needs to provide more thrust if President Vladimir Putin is to achieve his goal of boosting growth to a world-beating pace close to 4pc by 2024. In the Eurozone, hopes of stronger momentum were dispelled in July, with a slowdown in activity signalling that growth going forward might be sluggish at best. In most countries the outlook is neutral or only mildly positive.

A euro-area-wide Purchasing Managers’ Index for manufacturing and services dropped to 54.3, ceding most of the ground it gained in June, IHS Markit said. A reading above 50 indicates expansion.

Manufacturing has seen its most subdued spell in more than one-and-a-half years this summer, with July’s print only slightly stronger than the previous month.

Weakening order growth has been the main factor weighing down output, according to IHS Markit. Companies are also less optimistic about future business amid ongoing threats of trade wars.

In the US, things look better. US manufacturing firms signalled a strong improvement in operating conditions in July, despite the headline PMI falling slightly. Weaker rises in output and employment were seen in the month, but business confidence remained strongly positive, and was supported by hopes of further increases in overall new orders.

Rising input costs were an issue faced by firms but strong domestic demand made it easier to pass costs on, said IHS Markit chief business economist Chris Williamson. (Bloomberg)